Earnings Mixed Bag For Big Defense Contractors
A variety of the larger defense contractors have begun to report their most recent quarter’s earnings. So far it has been a mixed bag to say the least. Raytheon and Boeing have reported doing better then last year while Nothrop Grumman and Lockheed have done worse. EADS has yet to report but the prognosis is that they will do better as well.
While it is hard to point to the decisions made earlier this year by the Obama administration relative to keeping some acquisition programs going and canceling others as having an effect on earnings this will certainly be the case in the next few quarters. Boeing it would seem took the biggest hits with the end of the F-22 production and the restructuring of the Future Combat System (FCS). Lockheed also lost the VH-71 helicopter but will gain if F-35 production does actually accelerate. Raytheon saw the loss of some Missile Defense Agency (MDA) work as did Boeing but gained through selling its aircraft manufacturing business and receiving training contracts from the U.S. Army.
EADS is like Boeing in that it is able to use the commercial airliner business to balance off some of the downturns in the defense business. EADS is supposed to see an increase due to airliner sales. There may still be a downturn in sales as the world’s air transport industry is having a bad year as the world’s economy declines. EADS is also suffering from the delays to the A400M transport even though it looks like the buyers of that modern, mid-sized aircraft will be renegotiating the contract rather then canceling it outright which has been threatened.
The U.S. defense market will most likely shrink in the future as the Obama Administration winds down the Iraq commitment and restructures defense spending. The 2011 and out budget has yet to be released but there are sure to be other major defense acquisition programs ended or restructured. This will effect all of the companies revenue and earnings and it will be hard for them to sustain the growth of the last eight years.
Matthew Potter works supporting US Army aviation programs. He holds degrees in history as well as studying at the Defense Acquisition University. He has written for Seeking Alpha and at his own website, Defense Procurement News.
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